Thursday, April 8, 2010
Gold & the Dollar - Twin Sisters on a See-Saw or...?
It is 6:16 AM. Have a brimming cup of Thor's java and let's see if we can figure out some "confusement" on gold and the dollar. This is the second morning the ole Colonel has awoke to rising gold on the London spot market and a rising U.S. dollar. As I write, COMEX gold is falling back a bit but still very close to my March nominal price ($1148.8/oz versus $1150/oz) and the "Dixie" (U.S. Dollar index, .DXY) continues her 4-day rally. These two usually move in price like twin sisters on a see-saw but lately have been happily sitting in the same swing.
Let's return once more to our thoughts on March 2, "Gold really needs to sort out what its role will be in the coming months - a fellow traveler with the metals and oil or safe haven play for investors fleeing the commodity space" (The Colonel's Outlook for March). Nobody is fleeing the commodity space buckaroos but there are some signs that the recent run-up is feeling a little tired. Oil has thankfully pulled back from a dash to $90 and copper looks like she needs some R&R. Lawrence Williams reports a London-based metals consultancy, GFMS, opinion on copper today in Mineweb:
Copper price hiatus predicted then $8,000/tonne by year end - GFMS (Mineweb, 4/8/2010)
$8,000/tonne is $3.63/lb over her in the Colonies which is about where COMEX copper opened yesterday. If GFMS is correct, copper could move sideways or down with increased volatility before regaining her mojo.
I think we're still at an inflection point and the answer to our question about gold remains unclear. One thing for sure is the impact sovereign debt has had on both the U.S. dollar and gold. Checkout this chart of both for the last 6-months:
The debt crisis began with Dubai's problems in late November (Dubai World, A World Away?, 11/29/2009). By the first week of December gold was north of $1200 at its peak (blue line) and the dollar was at its bottom (red line); two sisters on the big risk/reward see-saw. With similar sovereign debt problems surfacing in Europe, the dollar strengthened and gold faltered. More recently the sisters jumped in the same swing as Greece's woes continue to dominate the headlines. In fact, gold and the dollar have both moved up roughly the same amount from where they were six-months ago (gold up 8.5%, Dixie up 6.0%). On average, this may suggest that the "safe haven" aspect of gold is trumping its black leather jacket role as a "risk trade" with commodities. It is tempting to breakdown the gold uptrend as a 2.5% commodity reflation and a 6% safe haven play. In truth, the answer is not clear.
Let's checkout 10-year Treasurys for another piece to this puzzle:
There has been great media hullabaloo that our national borrowing frenzy would cause the benchmark 10-year to collapse in price and jump in yield. Yesterday's 10-year auction was a big success; foreigners scooped up more of our notes like high grade in the mine pit. Our 10-year yields are dropping safely below 4% as Greek 2-year notes blow past a scary 8% yield this morning. Strong dollar, strong Treasurys; maybe we're not so bad off as everyone thinks! Will gold continue to move with the dollar or rest a bit on the bench with copper? Stay tuned.
Ending on a positive note, Western moly oxide ticked up to $17.45 and there is a buzz that demand for ferro-molydenum in Europe may further support prices. Here is a one-month chart of Miss Moly and Uncle Nickel:
Enough talk, let's walk the walk:
4-WD is ON - unsettled markets may persist; the VIX or "fear index" is in the 17s but below 25 which is good; metals & miners hang in there with benchmark FCX comfortably above $74 (what's this?)
The YELLOW light is switched back on our fuel gauge with oil above $80
An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is down $0.94 in early trading to $84.94 (May contract, most active); Gold is down $0.6 to $1148.8 (June contract, most active); Silver is down $0.209 to $17.990 (May contract); Copper is down $0.0380 to $3.5595 (May contract); Western Molybdenum Oxide ticks up to $17.45, LME moly 3-month & 15-month seller's contracts remain at $18.14
The DOW is down 20.41 points to 10877.11; the S&P 500 is down 2.27 to 1180.18. The miners are mixed:
Barrick (ABX) $40.89 up 0.47%
Newmont (NEM) $53.98 down 0.20%
US Gold UXG) $3.10 down 0.64%
General Moly (Eureka Moly, LLC) (GMO) $3.58 down 0.56%
Thompson Creek (TC) $14.04 down 0.32%
Freeport-McMoRan (FCX) $84.99 down 1.09% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are mixed, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $45.24 down 1.61% - global steel producer
POSCO (PKX) $123.38 up 0.64% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 0.21% to $1,428,328.88 (what's this?).
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Headline photograph by Mariana Titus